The antitrust perspective on patenting strategies in the life sciences industry | Hogan Lovells
In the last decade there have been a growing number of antitrust investigations against practices employed by innovators involving patenting strategies and exclusionary tactics to delay the entry of competing products in the form of generic or biosimilar drugs. Against this climate, the likelihood of complaints and investigations into patenting strategies employed by life sciences firms by the EU and US antitrust authorities (and the threat of litigation by private plaintiffs in the US) remains high. In this piece we set out some of the concerns raised by the authorities in relation to patenting strategies and considerations that companies may want to keep in mind.
Establishing market power and dominance
Patenting strategies can fall foul of the US and EU antitrust rules that prohibit unlawful unilateral acts by firms with market power.
Simply possessing market/ monopoly power or a position of dominance, however, is not an antitrust violation under the US or EU rules. Rather, in the US, an unlawful monopolization claim requires showing the willful acquisition or maintenance of monopoly power, meaning “the power to control prices or exclude competition”. In the EU, there must be an abuse of the dominant position, which may, for example, be exploitative or exclusionary.
Market power and dominance can be assessed in different ways. Market shares are typically seen as a good indicator of a monopoly position/ dominance, with shares of over 70% being a sufficient indicator of monopoly power in the US, and shares of over 50% generally being taken as evidence of a dominant position in the EU. Other factors may also be taken into account, for example, the ability for a company to price products at a certain level for a period of time may suggest a position of economic strength.
Antitrust oversight of IP protection practices
Antitrust laws recognize that even firms with market power have the right to protect their innovative efforts; there is no general antitrust prohibition against dominant firms seeking patent protection. Further, the building of a comprehensive patent portfolio – such as through applying for secondary or divisional patents – and enforcing one’s IP rights is not in itself an abuse of a dominant position. Nonetheless, antitrust authorities have expressed unease with the practice of filing numerous patent applications to delay or block entry of competitors on the market. Despite the unease, there is – to date – little precedent on enforcement in the EU relating to patent building strategies.
In the US, the issue of building so-called patent thickets has recently been considered by a federal court of appeals. In this case, the court held that a biologic manufacturer’s acquisition of a large patent portfolio for a single biologic product did not alone violate the antitrust laws. However, that decision applies only to acquisitions of patents from the US Patent & Trademark Office (“USPTO”), and not to acquisitions of numerous patents from third parties, including through exclusive licensing or by patent assertion entities.
Outside the issue of potential abuses through the accumulation of patents, there have also been cases in the EU where the focus has been on the interactions that the dominant firm has with regulatory bodies and patent offices. Over the last 20 years there have been several investigations brought by EU regulators against dominant firms for engaging in conduct such as making misleading representations to patent offices in order to prolong exclusivity protections, misusing the patent system (including what the European Commission has called the filing of “unmeritorious patents”) and unlawfully extending exclusivity through divisional patents. The European Commission is currently investigating a case involving the strategic filing and withdrawing of secondary patents, which is alleged to have the effect of prolonging legal uncertainty for generic companies looking to enter the market. The final decision of the regulator may push further the boundaries of using antitrust as a tool to curb patent practices.
Product hopping – a strategy in which a brand manufacturer tries to shift demand from a brand drug that is facing generic competition or imminent generic competition to a newer version of the drug that is patent protected and/or has exclusivity from generic competition – has also been a hot topic particularly in antitrust litigation in the US. While no product hopping case has yet made it to trial, several private lawsuits and US Federal Trade Commission (“FTC”) enforcement actions have made their way through the courts or settled in recent years. It remains to be seen how courts in the US will come out on product hopping claims if and when they make it to trial.
Concerns regarding abusive litigation
From an antitrust perspective, there is a tension between the fact that patent enforcement is a legitimate act and that litigation may be an obstacle to market entry and a deterrence signal for would-be competitors. Although the law recognizes that the exercise of a patent right by a dominant firm is not in itself an abuse of dominance, it is accepted that in exceptional circumstances, enforcement may involve abusive conduct and fall foul of the EU competition law rules.
In the US, while the enforcement of patent rights through the courts – even by a company with monopoly power – is generally immune from antitrust scrutiny under the Noerr-Pennington doctrine, there are nonetheless circumstances in which Noerr-Pennington protection does not apply and thus antitrust may step in. This includes, for example, Walker Process claims (i.e. an antitrust challenge to a patentholder’s enforcement of a patent that it obtained through knowing and willful fraud on the USPTO). Accepting that fraud may be a high standard to achieve, the FTC – in its November 2022 Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the FTC Act (“Section 5 Policy Statement”) – asserted that Section 5 could reach conduct before the USPTO that falls short of fraud, if it amounts to “inequitable practices . . . that interfere with the Patent Office’s full examination of patent applications.” It remains to be seen if the FTC will bring such a case and, if so, whether a court will agree (1) that conduct short of the requirements of a Walker Process claim can be challenged as an unfair method of competition under Section 5 of the FTC Act, and (2) that the conduct itself is not immune from antitrust liability under Noerr-Pennington.
Sham litigation is another type of patent enforcement that is not immune from antitrust liability. In the US, to establish that litigation was a sham, a plaintiff must show that the claims in the litigation were (1) objectively baseless, and (2) subjectively baseless (i.e., it must “conceal an attempt to interfere directly with the business relationships of a competitor through the use of the governmental process—as opposed to the outcome of that process—as an anticompetitive weapon”).
Sham litigation claims in the pharmaceutical industry are not uncommon. For example, a federal court recently denied a motion to dismiss a proposed class action that alleged a pharmaceutical company, among other conduct, employed sham patent litigation and sham citizen petitions to the US Food & Drug Administration (“FDA”) (requesting the FDA to take action) to delay the entry of generic versions of the company’s brand drug. The FTC has also brought sham patent litigation enforcement actions against brand manufacturers, including an enforcement action that was upheld by a federal court of appeals in 2020.
In the EU, pursuing aggressive litigation as a strategy to exclude competitors by entangling them in court procedures and delaying their entry into the market may constitute an abuse of dominance by way of “vexatious litigation”. Initiating litigation can be treated as an infringing abuse where two cumulative conditions are met. First, the dominant firm must bring an action which cannot reasonably be considered as an attempt to establish its rights and can therefore only serve to harass the opposite party, including, for example, where there was no genuine interest in judicial relief. Second, the litigation must be part of a plan to eliminate competition.
While vexatious litigation cases are rare, there has been recent precedent at the national EU member state level. In 2022, the Spanish competition authority issued a fine close to EUR 40m (approximately USD 43m) against a dominant firm for launching proceedings (including for injunctive relief) but then withholding relevant information from the court. The authority considered that the purpose of these actions were not to enforce patent rights, but were part of a plan to prevent new market entry.
Antitrust complaints regarding third-party communications
Outside patent litigation, a dominant firm’s communications with third parties also need to be compliant with competition law. In certain cases, communications by dominant pharmaceutical companies, including interventions with national regulatory bodies, outreach campaigns to health professionals and warning letters, can be considered to be an abuse of dominance in the EU and unlawful monopolization in the US.
There have been a number of cases in this area, mostly in France, although concerns about abusive competitor denigration has also been expressed at EU level, by the European Commission.
A body of case law is developing on abusive competitor denigration. While context-specific, the particular characteristics of the pharmaceutical industry (e.g. increased responsibility for patient safety and the importance of trust among professionals) mean that raising doubts as to the quality and safety of a particular product can constitute abuse and thus should be carefully monitored.
Examples of conduct being found to be anticompetitive include actions to dissuade the national authority from granting generic status to generic medicines by questioning their bioequivalence as well as distributing communications (such as newsletters, sales pitches and letters) to doctors and pharmacists emphasizing the risk associated with replacing the originator product with a generic. In an on-going case in the EU, the European Commission has expressed concerns about misleading messages based on inaccurate and/or incomplete information capable of confusing the recipient and discrediting a competing product. In some cases, the dissemination of information about the risks of switching to a generic may still be part of a strategy to delay market entry, and thus, be problematic under the antitrust rules.
In the US, many courts have imposed high burdens on plaintiffs bringing standalone competitor disparagement claims under the antitrust laws. Plaintiffs recently have had some success when false statements about competitors’ products are alleged as part of a course of conduct monopolization or conspiracy claim. For example, in 2022, allegations that had been brought by private plaintiffs and state attorneys general that a brand manufacturer made false safety claims about the brand’s generic version were upheld at the summary judgment stage in the context of an unlawful monopolization claim alleging a broad scheme of alleged anticompetitive conduct to prevent generic competition.
The FTC also has false advertising in its sights as a potential area of enforcement under Section 5 of the FTC Act. In its November 2022 Section 5 Policy Statement, the FTC asserted that “false or deceptive advertising or marketing which tends to create or maintain market power” is a violation of “the spirit of the antitrust laws” and an unfair method of competition under Section 5. It remains to be seen whether and how the FTC may use Section 5 to bring these claims and whether courts will be receptive to them. Regardless, the FTC’s interest suggests extra caution is warranted for brand companies making claims about competitor or generic products.
Being strategic
While – under most theories – antitrust authorities are not required when enforcing the antitrust rules to prove the existence of an anticompetitive intent to exclude its competitors (only that the conduct of the dominant firm was capable of producing anticompetitive effects), authorities can look at evidence to establish an anticompetitive strategy on the part of the dominant firm, and take the existence of such a strategy into account when setting fines. As such, antitrust risk can be reduced where firms act (and can document they act) on competition on the merits.
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Legal counsel should be particularly alive to cases where the concealment of facts and/or misrepresentations to authorities is involved. While there is no requirement that dominant firms must be infallible in their dealings with regulatory authorities, the antitrust regulators are likely to find issue with representations that are knowingly wrong.
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Conduct should be attributable to normal commercial practices. For example, flags may be raised where there is a filing of a (secondary or divisional) patent timed not to the innovation but solely to delay the entry of a competitor. Competition authorities and private plaintiffs are likely to be particularly skeptical of additional patents secured relatively close in time to the end of any exclusivity or existing patent term.
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Care should be taken with internal documents when discussing patent strategies. Language suggesting that the strategy is to delay generic entry through aggressively defending patent rights to buy time, slow competitors down and to create uncertainty, for example, should be avoided. Competition authorities and private plaintiffs regard problematic statements in internal documents on the anticompetitive rationale for conduct to be highly informative of the likely effect of the conduct.
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Companies should be ready to defend their actions with objective justifications, such as the legitimate protection of innovation and investment. Given the importance of internal documents, it is best practice to enshrine the procompetitive rationale for any conduct in internal documents.
